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Are You an Estate Planning Procrastinator? Where to Start

Harry November 5, 2024

Many people put off estate planning. It’s easy to see why; After all, it is difficult to confront our mortality, and deciding and documenting what to leave behind to our loved ones can become complicated.

But without being suitable estate plan Adjusting your financial picture after passing can create difficulties for your beneficiaries. There are many pitfalls associated with poor estate planning. To help avoid these and make sure your plan is solid, here are some important considerations you need to cover.

Choosing between a will and trust

Wills and trusts are legal instruments designed to transfer your assets to your heirs in the way you want. a will comes into force after death, whereas a trustWith someone appointed to oversee it, it can manage your assets while you are still alive.

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Probate is often used as a cost-effective option for those with smaller estates. A trust is usually implemented if the person owns a large estate, wants more control over asset distribution, and values privacy. Trusts help bypass probate, the court-supervised process for distributing your property. Inheritance It is a costly and time-consuming public process due to professional and administrative expenses. Depending on the type of assets or items you own, the court will require professionals to determine an accurate value and ensure they are appropriately distributed to your heirs.

Choosing the right person to manage the legacy

People often choose family members to manage the estate, but this can be challenging, especially if they don’t understand tax laws and have the expertise to manage certain types of complex assets, estates, and retirement accounts. In some cases the process often becomes more expensive and time consuming.

Then there are family dynamics you need to consider. choose a practitioner. If family members disagree or disagree on how the estate is handled, this can bring more time and expense, as well as mental anguish. If you go the professional route to manage the estate, you’ll want to balance the cost of paying a real estate professional with having a family member manage the different pieces.

Understanding tax issues and reducing the burden on heirs

You want to create the smallest tax burden possible for your heirs. Without an estate plan for tax considerations, your heirs could be hit hard.

Wills do not avoid estate taxes. At the same time “death taxFederal estate tax is a tax on a person’s inherited assets. Federal estate tax ranges from 18% to 40% but generally only applies to assets over $13.61 million in 2024 (e.g. 2025 property tax exemption (increasing to $13.99 million for individuals and $27.98 million for married couples). Some states also impose property taxes. The value of a property can determine whether it is exempt from state taxes, and these thresholds vary from state to state.

Here are some ways to reduce your heirs’ tax burden:

A. life insurance plan may remove tax consequences for your heirs. Death benefits, whether for a term or whole life policy, are generally not subject to income taxes unless paid in installments to beneficiaries.
A. living in confidence will often include language that could maximize property tax exemptions in their state of residence. Most states have property tax thresholds well below the federal threshold; for example, Oregon’s exemption is only $1 million. A properly designed trust can be an important tool in helping to fully maximize allowable exemptions, potentially saving heirs a significant amount of money.
Giving gifts to your heirs It may be the most direct way to minimize inheritance tax annually while you are still alive. Annually for 2024 gift tax exemption It is $18,000, which generally means a person can donate up to $18,000 to as many people as they want without having to pay any taxes on the gifts. For example, a grandparent might give $18,000 to each of their 10 grandchildren this year, gift tax-free. In 2025, this exemption will increase to $19,000, and married couples can effectively double that amount to $38,000 per recipient.
Converting retirement accounts to Roth accounts it could be logical. Heirs can pay all kinds of taxes inherited retirement benefits If they are in a 401(k) or individual retirement account (IRA). But if they inherit a Roth 401(k) or Roth IRAthey won’t have to pay taxes for them. If you have retirement funds that you won’t need, you might want to consider this. Roth conversion Helping your heirs reduce the tax burden on inherited assets.

long term care

Statistics shows that more than half of seniors will need long-term care at some point. plan for this possibility long term care insurance It may be important to protect the assets of your heirs. Even if you believe you have enough retirement assets to cover your long-term care, consider the scenario if you, your spouse, or both of you need long-term care. But what if you don’t have some form of LTC insurance? Imagine working your entire life to accumulate assets, then getting sick and spending everything you earned on care, leaving your heirs with significantly less or nothing.

Think of all the time people spend planning vacations or buying a house or car. But ultimately, estate planning is most important of all. Take time to put your affairs in order and protect your loved ones from excessive stress. Having a solid, comprehensive estate plan can give you peace of mind and ensure a smoother transition of your wealth, property, and other assets to your loved ones.

Dan Dunkin contributed to this article.

The appearances at Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this article for submission to Kiplinger.com. Kiplinger was not compensated in any way.

This article was written by and represents the views of our contributing consultant and not by Kiplinger’s editorial staff. You can check consultant records at: SEC or with FINRA.

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